IG Markets - Afternoon Thoughts

The S&P
500 is knocking on the 1500 door and solid earnings from
Google and IBM have kept futures elevated through Asian
trade. Apple and McDonalds have hogged the limelight today
with the market expecting the former to achieve Q1 EPS of
$13.52, Q1 revenue of $54.83 billion and gross margins of
38.6%. Apple is at a pivotal juncture, and the market, after
pushing the stock down 18% since the Q4 results, is looking
for evidence of a trough in earnings and the confidence
needed to see a change in fortunes. Those who have been
buying ahead of earnings should be appeased that history is
on their side and the tech giant has beaten top-line
expectations in six out of the last eight quarters.

Asia has once again dragged on European calls, although
we haven’t really seen an overwhelming response from
clients to short indices today. Japan is once again the
standout as traders continue to sense that the rise in
USD/JPY has hit a ceiling and inflows back into the JPY (at
least in the short term) are a distinct possibility. The
half-hearted response by the BoJ looked at first blush to
have done enough, but it seems the market now feels the
actions are no way urgent enough to rise up to the task at
hand. Clearly, with the conservative-natured Mr Shirakawa at
the helm, the aggressive policies that are sought by Shinzo
Abe and needed to even dream of achieving 2% inflation are
not going to materialise. With Mr Shirakawa stepping down in
early April, a rally into the change of leadership in
USD/JPY and the JPY crosses should unfold given the
candidates pencilled in are keen promoters of Abe’s more
radical measures. The market is watching government and
central bank rhetoric on Japan’s contribution towards an
all-out currency war; this will be when the war of words
really heats up.

Australia has once again held a
firm line despite its tendency to follow its second biggest
trading partner in Japan. A below-consensus Q4 CPI (trimmed
mean running at 2.4% year-on-year) has kept the interest
rate cut hopefuls happy, although we would not read into
this too much. At the most this removes inflation as a
hurdle to cut rates further, but a lot now falls on domestic
data, like employment, to give the bank the ammunition
needed. The modest falls in AUD/USD to 1.0527 suggests the
market agrees with us. BHP has also shown that Australia’s
biggest company is tracking as expected and executing as
planned. The numbers today pleased the market and while most
divisions threw up few surprises relative to expectations,
there were some positive themes if you drill down. The
copper division looks interesting , and while the metal
makes up around 15% of net asset value, it has made a real
effort to highlight the growth in this space. Given the
metals fundamentals (with positive supply/demand balance and
a growing US housing market), growth here should appease
investors.

European markets look set to open on the
front foot with the FTSE likely making a new higher high and
continuing the uptrend. While many are bearish on the
prospects for sterling, especially given the potential for
the BOE to link monetary policy to a GDP target under the
upcoming Carney leadership, sterling’s loss is potentially
the UK market’s gain. We feel that after underperforming
in 2012, this index may see better days on a relative basis.
Today’s employment data and BOE meeting minutes could hold
some future clues on policy ahead of the GDP report, which,
according to Mervyn King will be much weaker than Q3.
Eurozone consumer confidence will also be in focus and for
currency traders the Bank of Canada meeting could throw up
some volatility. Expect inflation forecasts to be cut,
although we would look more closely at its tightening
language. The IMF will also release updates to its world
economic outlook.

Rocket Lab has signed a Commercial Space Launch Act Agreement with the National Aeronautics and Space Administration (NASA). The agreement enables Rocket Lab to use NASA resources - including personnel, facilities and equipment - for launch and reentry efforts. More>>

ALSO:

Reserve Bank governor Graeme Wheeler says some market commentators are predicting further declines in interest rates that would only make sense for an economy in recession, although some easing is likely to be needed to maintain New Zealand’s economic growth. More>>

Legal advice sought by the Hawke’s Bay Regional Council on the Ruataniwha Dam consent conditions has confirmed that farmers who sign up to take water from the dam could be required to reduce the intensity of their farming operation to meet the catchment’s strict nitrogen limit. More>>

Health and safety law reform sparked by the Pike River coalmine disaster has been reported back from the industrial relations select committee with weakened requirements on small businesses to appoint health and safety representatives and committees. More>>

The value of fruit exported rose 20 percent (up $330 million) for the June 2015 year when compared with the year ended June 2014. Both higher prices and a greater quantity of exports (up 9.0 percent) contributed to the overall rise. More>>